Completed my first BRRRR today thanks to all the information that I learned from the hours of reading on BP and a few books too. Ended up with a 5 bedroom 4 full baths and 2800 sq. ft. 2 story with another 1550 sq. Ft basement (unfinished).
Here’s the story and the numbers:
Property went on the MLS on 11/21/2016 for $125,000, on 2/3/2017 was reduced to $99,900, on 2/15/2017 it was reduced to $89,900 then on 3/6/2017 it was reduced to $79,900. On 3/7/2017 I went to look at it and put in an offer of $60,000 that night. I had been watching that property for a while. They accepted it and then it got real. This was the first house I looked at and my first offer ever. I didn't expect it to be accepted. I was worried because they didn't counter at all. I thought I may have made a mistake. As it turns out it was a solid house. Paid an inspector and he said nothing was wrong that I wasn't already aware of.
I knew it needed a lot of work and I knew a lot of it I could do myself. It was 2800 sq. ft. but half of the upstairs was never finished at all. I knew I could finish it and made a floorplan of what I wanted to do with it. The floorplan I made worked out great in the end. We added a master suite with large walk in closet, large bath with a walk in linen closet and a hall bath for the other two upstairs bedrooms to share. I did have an inspection contingency and a financing contingency.
So then it was time to find financing. Called a few local banks and could not find a bank willing to do what we needed. Then I made one last call to a local bank and they had a "purchase/rehab" program that was perfect. We had to put 20% down on the purchase price ONLY then they would finance the entire rehab 100% (only a 1% origination fee). It was a 1 yr. loan interest only at 4.375%. They ended up asking for 25% down since it was my first one and had to put my personal residence up as a guarantee but they approved me. The original appraisal included an ARV value for after the house was renovated. It came in at $164,000. I knew that was low but didn't care because they would loan up to 75% and that was plenty after putting 25% down.
The rehab portion was originally $60,000 but we went over budget and had to get another $12,000 from them. Well we went over that too but used cash and an interest free credit card to finish everything up. We did a lot of things that were not in the original scope of work (roof over the porch, new porch, all new windows, concrete walks instead of gravel). I thought it would take 4 to 6 months to finish. It took 10 months but the amount of cash I saved doing the work myself was worth it since I was tight on cash but had time. I ended up putting in 1304 hours in 10 months while working full time and my dad helped another 463 hours. My wife helped some but she is permanently disabled so I knew she couldn’t help much. I hired out roofing, siding, gutters, porch roof, and windows all by the same company and they don’t ask for any money until the entire job was complete. This worked well because we had to get regular inspections for the draws on the rehab portion just like a construction loan. The only other work I subbed out was plumbing rough-in for 2 baths, and drywall finishing. We hung 142 sheets of drywall, rewired the entire house (my stepson is an electrician) redid the entire kitchen, and laid 2500 sq. ft. of vinyl laminate flooring among other things.
Refinance time:
I applied for the refi through the same local bank the original loan was with. The guy asks me what the property is worth and I said “at least 180k but likely a lot more”. That was my first mistake. He put in his loan amount as 135k (75% of 180k). He said we could change that based on the appraisal. I asked what information the appraiser sees on a refi and he assured me several times this would not affect the appraisal since they don’t see this info. Well the appraisal came back at 184k. Go figure. I was irritated and let the mortgage guy know and that’s when he let slip that they do see the amount of the requested loan amount and could figure out from that what the appraisal needed to be. I told him I would look elsewhere since I would have to apply somewhere else to get a new appraisal. I ended up going with J.G Wentworth and they were awesome. Rate was 5.5% (30 yr. fixed) instead of 5.625% from the other bank and we got a new appraisal. I told her that it was worth 210k and guess what it came back at…. 212k. Just over what we needed to get this loan amount. Also the original appraiser did a market rent analysis to use the rental income to qualify and it came back at $1550/mo. The new appraisal market rent analysis came in at $1750/mo. which is what it was rented for. Really glad we went elsewhere.
Now for the numbers:
Purchase price $60,000
Rehab total $85,326
Holding costs $6,532
Both loan costs $6157
Total $158,705
Refinanced cash out $159,000
PITI payment $1125
Vacancy 5% $87
CapEx $175
Maintenance $60
Management $175
Total Costs $1622
Rent $1750/mo.
Cash flow $128
Cash flow is actually $303 since I am managing it myself but included management cost to get a clear picture of the numbers. The entire house is new except furnace (10 yrs. Old) and water heater (3 yrs. Old) so capex should be minimal for quite a while.
Here are some before and after photos:
